These tech stocks have been trending lower after hitting new highs recently. When tech stocks have disappointing news or earnings from high valuation levels, the shares can often collapse. It seems that some investors have forgotten what can happen when stocks trade at excessively high multiples. These companies have potential, but at what price? In the past, some investors were willing to pay high PE ratios for tech companies like Cisco (CSCO) or Microsoft (MSFT), but in hindsight, that was not a good investment. Investors who paid too much for growth, often lost money or broke even after holding those names for many years.
The tech stocks below are trading at valuations that don't appear to provide sufficient returns for the risks these investors are taking, and it looks like the market is waking up to the potential overvaluation in these names as they have all started to exhibit material weakness. The weakness can be seen in the charts, and it is likely to attract new interest by shorts. The combination of high valuations, and the start of a new downtrend which can be seen in the charts, is just what most shorts are looking for. Here are the six companies:
Citrix Systems, Inc. (CTXS) shares are trading at $67.48. Citrix provides online services and other business solutions. The 50 day moving average is about $68.28 and the 200 day moving average is about $61.71. Earnings estimates for CTXS are about $2.32 per share in 2011. This puts the PE ratio at about 31.
Red Hat Inc., (RHT) shares are trading at $39.60. Red Hat provides open source software solutions. The 50 day moving average is about $42.59 and the 200 day moving average is about $39.26. These shares have traded in a 52 week range between $26.69 and $49. Earnings estimates for RHT are about 79 cents per share in 2011, so the PE ratio is about 50 on these! Shares have just dipped below their 50 DMA, so the next stop might be around the 200 DMA at $38.94, or maybe lower.
F5 Networks (FFIV) shares are trading at $93.07. F5 provides solutions that optimize networks. The 50 day moving average is about $117.66 and the 200 day moving average is about $105.78. These shares have traded in a 52 week range between $60.50 and $145.76. Earnings estimates for FFIV are about $3.62 per share in 2011. These share have recently dropped below the 50 and 200 day moving averages, which is very bearish.
Salesforce.com, Inc. (CRM) shares are trading over $121.14. The 50 day moving average is about $133.27 and the 200 day moving average is about $118.06. Salesforce provides CRM business solutions. Earnings estimates for CRM are about $1.38 per share in 2011, so the PE ratio is nearly 100 on these shares. These shares have just dipped below their 50 DMA, so the next stop might be around the 200 DMA at $118.06. If I owned these shares, selling them would be the first thing I would do.
ARM Holdings, PLC. (ARMH) shares are trading at $25.30. ARM Holdings designs and sells microprocessors. The shares currently trade well below the 50 day moving average of $27.30. The 200 day moving average is $19.43 which is where this stock could be headed. Earnings estimates for ARMH are about 46 cents per share for 2011 and about 75 cents for 2012. This puts the PE ratio around 37.
Riverbed Technology (RVBD) shares are trading at $37.15. Riverbed provides networking solutions for business. The shares currently trade below the 50 day moving average of $39.10 and above the 200 day moving average of $27.53. These shares have traded in a 52 week range between $12.57 and $44.70. Earnings estimates for RVBD are about 85 cents per share for 2011. This puts the PE ratio around 40.
The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.